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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: Jerry Olson who wrote (33855)	9/30/2000 1:14:50 PM
From: IQBAL LATIF	Read Replies (2) \| Respond to of 50167

For many of us in NT... Nortel Proves Mortal By Bob Beaty Canada Columnist 09/29/2000 9:48 AM Click here for printer-friendly version E-mail this article to a friend About the only thing left to blame on Nortel (NT: NYSE) is global warming and Canada's poor medal showing at the Olympics. Since analysts and investors were blindsided by Intel's (INTC: Nasdaq) revenue warning earlier this week, the wagons have been circling to make sure that doesn't happen again, or at least that no one gets caught off-guard. Press reports have analysts downgrading Nortel -- after it's already come off 30% -- pegging it as just about the sole reason for the Toronto Stock Exchange's poor performance of late and even the weakness of the Canadian dollar. More realistically, the Canuck buck's ugliness is a function of an intransigent 7%-plus unemployment rate, a contentious pending federal election and the government's resistance to deal with, effectively, the massive debt various administrations have cavalierly built up over the last 20 odd years. Short-Term Shakeout As I mentioned last week, all this negativity may weigh on Nortel in the short-term. It just makes easy press and a warm and fuzzy rationalization for those who can't stand the heat. Interesting to note, that buried in the press reports this morning was the quiet announcement that Nortel had signed a deals with Chunghwa Telecom of Taiwan and with China Unicom (CHU: NYSE ADR) to supply new wireless networks. The contracts are worth US$525 million in total. That's half a billion US dollars, if you're counting. Most companies work for decades and never accumulate that value. In China, Nortel has won wireless network contracts in no less than 17 of 31 provinces. And lest we forget, Nortel reported revenue of US$21.3 billion dollars in 1999. Nortel's twelve-month trailing revenues as of June 30 were north of US$27 billion. Another full clip leveled into Nortel is the fact that the stock has violated its 200-day moving average. If you look at a longer-term chart of the price action for any period greater than the last year, the price is nowhere near the line. One of my tech buddies actually looks at the short-term transgression as more of a buying opportunity than a reason to sell. Erasing the P/E Ratio With Nortel at US$60 and a First Call/Thomson Financial consensus earnings estimate at US$0.98 a share for fiscal 2001, the price/earnings ratio has dropped from nearly 100 times to around 60 times based on those projected earnings. For the first half of 2000, Nortel traded in the range of US$50 to US$60 on large volume spikes. Certainly, if there were to be a continuation of the barrage of "bad" news the stock could see US$50 in a flurry of overreaction. But since the market has already punished Nortel for various reasons (including, it seems, for just being Nortel) even an earnings downgrade would likely be the only catalyst that could drive it there. A US$50 price would be a 40% retraction from the high of US$86, against a backdrop of a growing top and bottom line. Growth may slow, but in the medium- to long-term, quality will out. The beating up of the telecom sector isn't confined to Nortel. It's just expanded from poster stocks Cisco (CSCO: Nasdaq), down a Nortel-like 30% from its high and premier whipping boy Lucent (LU: NYSE), down a whopping 60% over the last year. Bears Grudgingly Agree Further weakness may come, but investors have to remind themselves that stocks don't light up when they hit a bottom. And they may spin their wheels a while before they come back into favor. Few saw Nortel getting pounded this badly a scant few weeks ago. Few now see it recovering. Likely the smart long-term money will begin picking away at Nortel: among other kudos, the company boasts 40% of the global optical-equipment market. While volatile, the sectors that Nortel is in may ebb and flow in the short-term, but even the most bearish have to admit Nortel's dominance. In the meantime, I expect blaming Nortel for the current oil crisis should not be far off. Bob Beaty is worldlyinvestor.com's Canada Editor. He worked for 20 years in the brokerage industry, in both Canada and the UK. Now primarily Internet-based, he has written extensively on stocks, bonds and market-related issues for a variety of Web sites. His column suggests investment and trading opportunities in the Canadian market. He doesn't hold positions in any of the companies mentioned. Positions may change at any time.